Capita (aka Crapita) – service provider for one of NAMA’s most lucrative contracts

In May 2010 NAMA finally appointed a “Service Provider” to a tender that it had issued in July 2009 and with a closing date for bids also in July 2009. The tender was for a Master and Backup and Specialist Loan Services provider. You can read the outline description of the tender here but in summary it requires a Services Provider

(a) to keep track of certain NAMA loans and the assets underpinning them (Master)

(b) take over from the banks in certain instances to collect cash and test covenants (Back-up)

(c) where there is default to act to maximise the recovery on the loan (Specialist)

The contract was awarded in May 2010 to a company called Capita Asset Services (Ireland) Limited, part of the UK’s Capita group. NAMA pays a substantial sum of money to its loan service providers – the first NAMA Quarterly Accounts for the period ending 31st March, 2010 show that €1.04m was paid for loan services – some of this will have been paid to the banks but even so, for effectively managing loans for 2 days, it is a substantial sum.

Unlike many of the NAMA Service Providers, you mightn’t have heard much about the Capita group and this entry examines a little of their history in the UK.

First off, the name Crapita was coined for Capita by the UK Private Eye magazine in 1999 after tracking the company for a decade. There were two reasons for the moniker – first off for providing “a crap service” and secondly having “a cuddly closeness to Labour [then the ruling party in the UK] and its chums”. Capita itself is a vast conglomerate and had pre-tax profits in 2009 of £258.1m; it has fingers in many pies but it is perhaps best known in the UK as being an outsourcing company for councils and government organisations (including the BBC where it has run the licence fee collection service and the Action Line phone service). Before examining the crap service and “cuddly closeness” to folks associated with awarding contracts, there is one suggested feature of Capita contracts which NAMA should have examined and be aware of – costs if the contract is terminated which has been suggested by Private Eye in several instances where it appeared that poor performance of a service might have otherwise resulted in contract termination.

Crap Service

Private Eye said that they tracked Capita for a decade before assigning the Crapita moniker in 1999. It seems that the next decade would give even better reason for the christening.

Capita operated the council tax collection service for Lambeth council in London which went on to be placed 354 out of 355 councils in the country for its collection rate of less than 90%. The company is reported to have had similar “success” with council tax systems in Broxbourne, Bromley and other councils.

The Vale of White Horse council in Oxfordshire outsourced their finance function to Capita in a GBP £9.1m 7-year deal and in the ensuing chaos, staff didn’t get paid, councillors didn’t get reimbursed their expenses and indeed the council was threatened with being cut off by the electricity company because Capita “forgot to pay the bill”. And more recently an Audit Commission report revealed that the council and neighbouring South Oxfordshire council had lost GBP £960,000 between them in 2008-9 as a result of errors by Capita and poor procedures that allowed fraudsters to pocket housing benefit to which they had no entitlement.

Capita developed Birmingham City Council’s website and the cost of developing it rocketed compared with its budget. Capita said the website would be up and running in March 2006 at a cost of GBP £580,000. Capita went back to the council with a changed website which would cost GBP £2.2m and then Capita demanded GBP £0.6m for unseen costs. The website was due to go live at the end of 2009, three years late and 383% over initial budget. Worse, the website was supposed to deliver major savings to the council which the delay prevented from being realised.

Sector Treasury Services Limited, “the leading provider of treasury management , risk and capital financial advisory services to UK public service organisations” which is part of the Capita Group provided advice to many British local authorities to place funds on deposit with Landsbanki, the failed Icelandic bank. Indeed even as late as September 2008, Sector was advising that the bank was a good bet for short term deposits whilst negatively assessing its longer term prospects.

The BBC outsourced certain human resource functions to Capita who then leaked employee details to “a wider group of people than was necessary”. There were suspicions that confidential health details were similarly leaked. Capita passed on confidential information provided by BBC staff to counsellors – the information was passed on to managers involved in selecting staff for redundancy.

The company was at the heart of the disastrous Criminal Records Bureau (CRB), which assigned criminal records to 2,273 people. The computer system for the CRB was seriously delayed and there were £150m of budget overruns. In 2002 Education Minister, Estelle Morris declared herself a “very dissatisfied customer” after the Capita-run CRB’s inability to vet teachers resulted in delays to opening many schools.

A computer system sourced from Capita to provide Individual Learning Accounts went £50m over budget and then scrapped

Capita Trust Company was fined £300,000 by the UK’s Financial Service Authority for mis-selling financial products, precipice bonds, to 500 customers who didn’t understand them and ended up losing £3.5m.

Capita provides the software, Sims, that is used in 85% of UK schools and which manages pupil records, finance and timetabling. There was data loss of pupil details including parent contact records.

Capita won what has been described as a lucrative contract in 2001 from Cumbria council to create 1,000 new jobs within 5 years and to pay a penalty of £1,000 for every job short of 1,000 that it failed to create. When Capita failed to achieve that target (producing 219 jobs at the end of 2005) the council extended the period by a further 3 years and even then the figure came to 575. There was some confusion about the 575 as it apparently included 190 jobs that had been outsourced from a nuclear power-plant so the same people were doing the same jobs but with a different employer.

University Hospitals of Leicester NHS Trust outsourced payroll functions to Capita. There were repeated problems with staff not being paid for overtime, being underpaid or not being paid at all. Personal details of staff were found in the street and the council had to pay interest and other charges for staff not paid their correct wages.

Capita’s use of its “transformational” IT system, Voyager, apparently led to the van of an employee at Birmingham Council having his van repossessed by bailiffs because of apparent non-payment of a leasing bill.

Capita took over Lambeth council’s housing benefit service in 1997 in a 10-year, £48m contract. Four years into the contract, there was a backlog of 55,000 claims and hundred of people had been made homeless thanks to Capita’s failure to process claims on time. The contract was torn up costing Lambeth £18m.

Capita Conferences UK division runs seminars and conferences aimed at public sector workers. They advised that for one seminar run in February 2005 “Women in the Modern Police Service” one speaker would be the Vice-president of the British Association of Women in Policing. (BAWP). The BAWP sent a memo to its members pointing out that the VP had not agreed to speak and that the conference organisers used “some devious” techniques to get speakers from the BAWP and elsewhere.

They cocked up the finance functions for a number of councils which led to staff not being paid and bailiffs turning up to repossess council property because bills hadn’t been paid.

“Cuddly closeness”

There was a scandal in the UK in the mid 2000s when it emerged that the ruling Labour Party may have been effectively selling honours (titles, ennoblement to the House of Lords) in return for donations. At one point the attention turned to loans made to the Labour party on soft terms (low interest rates, indeterminate repayment dates). It emerged that the then-chairman of Capita, Rod Aldridge, had loaned GBP £1m to the Labour party when his company was in receipt of GBP £238m of annual government revenue. He resigned his position shortly thereafter saying he didn’t want his personal loans to detract from Capita’s performance though he was promptly appointed to a prominent quango role. Also at the time of his resignation, he is reported to have had GBP £70m of Capita shares which led some to speculate that his action wasn’t entirely selfless.

Capita employs people from government departments in which it seeks contracts. Capita Symonds hired Archie Robertson, the outgoing Chief Executive of the Highways Agency. Capita Symonds chases consultancy contracts from the public sector including the Highways Agency. Capita hired Sir David Rowlands, former permanent secretary at the UK Department of Transport. Capita used to run the GBP £60m-a-year London congestion charge which it lost in 2007 but still runs the DVLA (Driver and Vehicle Licensing agency) computers as well as other Department of Transport contracts. Eugenie Thurnton, former director of housing for Labour’s John Prescott works for Veredus, a Capita subsidiary which specialises in recruiting executives for local councils and the public sector and indeed had a role in recruiting former Capita chairman, Rod Aldridge to a prominent quango role.

Capita spends money on organisations set up by those close to government eg LLM, the lobbying firm set up by former advisers to Jack Straw, Gordon Brown and Tony Blair or the New Local Government Network, the Labour-connected think tank. It has paid for meetings at the Labour conference addressed by Home Secretary Charles Clarke and Local Government Minister Phil Woolas. The former chairman, Rod Aldridge, donated £2m to the Darwen City Academy and by coincidence Capita then won a £178m primary and Key Stage Three education strategy contract from the Department for Education.

In 2009 Capita paid for Audit Commission’s chairman Michael O’Higgins dinner and hotel room at a conference organised by the Guardian. Capita appeared to fund three dinners and an opera for Identity and Passport Service (IPS) service delivery director, Bernard Herdan.

In more recent times, Capita is reported to partly fund Reform, a Tory-linked think-tank

Birmingham Council chief executive Stephen Hughes was suspected of having what Private Eye called a “Ugandan” relationship with senior Capita executive, Debra Lee. Both were directors of Service Birmingham, a joint venture between Capita and Birmingham City council.

Now in fairness to Capita, they are one of many outsourcing organisations in the UK and many have been at the receiving end of Private Eye’s journalism, though I think it would be fair to say Capita have been the top target. And in many instances the focus of the journalism has not been the quality of Capita’s service but the ethos of outsourcing in the first place. And of course Capita Asset Services (Ireland) Limited is a distinct entity though it is part of the Capita group. The professional management of loans is essential for NAMA to be successful. What happens if the service provider loses paperwork, fails to record details of loans and assets correctly, leaks information or has computer problems? The effects could be devastating.

So there you have it, Capita, a company with a controversial history in the UK and perhaps deserving attention in its performance of the loan service for NAMA’s loans.